WEST DES MOINES, Iowa, Jan 3 (Reuters) - Republican presidential contenders Rick Santorum and Mitt Romney were neck and neck in Iowa on Tuesday in the party's first contest to determine a challenger to Democratic President Barack Obama.

Partial returns from the state Republican Party showed the two candidates winning roughly 25 percent of the vote each with about 92 percent of precincts reporting. Ron Paul was in third place with about 21 percent of the vote.

The months-long campaign has been marked by volatility. Romney is a favorite of the party's business wing, while Santorum appeared to be consolidating the state's large bloc of Christian conservatives. Paul has drawn a passionate following among libertarians and younger voters.

Iowa's caucuses are known more for weeding out candidates than picking the future president but a strong finish here could provide a big boost in the state-by-state battle to choose the Republican to stand against Obama in the Nov. 6 election.

Most of the candidates have topped opinion polls at one point in a race that until recently centered on televised debates rather than on-the-ground campaigning.

With deep reserves of cash and a strong campaign infrastructure, Romney emerges from Iowa in a much stronger position than his rivals. He holds a commanding lead in the next nominating contest in New Hampshire, a week from now.

Long an afterthought in the race, Santorum is the latest candidate to emerge as the conservative alternative to Romney.

The former Pennsylvania senator wagered his campaign on a strong showing in Iowa as he visited all 99 of the state's counties and emphasized hot-button social issues in a play for the state's sizeable bloc of Christian conservatives.

With little cash and a bare-bones campaign operation, he could have difficulty competing in other states.

Many voters said they were undecided even as the caucuses got under way. Voters gathered in schools, libraries churches and other venues around the state, listening to supporters tout the various candidates before casting their ballots. Democrats and independents were allowed to participate as long as they re-register as Republicans at the site.

"There's bits and pieces of each candidate that I like and bits and pieces that I don't," said Judy Peters, the owner of an events center in West Des Moines which staged one of the meetings.

Outside groups associated with candidates, known as "Super PACs," have taken advantage of loosened campaign-finance rules to flood the Iowa airwaves with negative advertising.

Former House of Representatives Speaker Newt Gingrich has seen his support erode under a barrage of such attack advertisements. Early returns showed him in fourth place ahead of Texas Governor Rick Perry.

"Poor Newt. I kind of feel sorry for him. He's just been savaged," said voter James Patterson, who said he planned to vote for Romney. "Somebody's really, really mad at Newt."

Sparsely populated Iowa only yields 28 delegates of the 1,143 needed to lock up the Republican presidential nomination, and those delegates aren't actually awarded for months after Tuesday's caucuses.

Only 5 percent of eligible voters were expected to participate. Still, the stakes are high.

Romney, a former Massachusetts governor, aimed for a win that could ease persistent doubts among conservatives about his moderate past and propel him toward clinching the nomination early.

Surveys show Romney performs best among Republicans in head-to-head matchups with Obama in a campaign certain to focus on the economy and high unemployment.

But so far, polls show he has been unable to win more than one-quarter of likely Republican voters.

"I was really not interested in any of the candidates at all and I didn't notice Santorum because he was so low in the polls," said Rachel Wright, an artist who spoke on behalf of Santorum at a caucus in Ames. She approved his anti-abortion stand. "He is really strong pro-lifer. I admire his faith, and I almost admire that he isn't in our face about it."

Largely consigned to the margins for most of the race, Santorum is now fending off attacks from his rivals who see him as a new threat. On Tuesday, he accused Paul of launching a wave of automated phone calls that questioned Santorum's anti-abortion and pro-gun credentials.

Paul, a congressman from Texas, has won a zealous following thanks to a message that emphasizes a drastically limited government and a scaled back foreign policy.

FLICKERING HOPES

Struggling rivals like Perry and U.S. Representative Michele Bachmann fought for at least a fourth-place finish that could preserve their flickering hopes.

The caucuses start a frenzied month for the Republican presidential hopefuls that will include a half-dozen debates in January and three more state votes -- on Jan. 10 in New Hampshire, Jan. 21 in South Carolina and Jan. 31 in Florida.

Iowa's nominating contest has traditionally cleared the field of losers and elevated surprise contenders. Former Arkansas Governor Mike Huckabee won the 2008 Republican caucuses, but fell short of the nomination. The eventual nominee, Arizona Senator John McCain, finished a distant fourth.

Obama launched his White House run with an Iowa win four years ago. This time, Obama is the only Democrat running, but the party is holding caucuses anyway and he addressed caucus-goers by video on Tuesday night.

(Additional reporting by John Whitesides, Steve Holland and Sam Youngman in Iowa and Lily Kuo in Washington; Writing by Andy Sullivan; Editing by David Storey)

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